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EU Anti-Fraud Strategy

27 February 2012
by eub2 -- last modified 27 February 2012

Around 1.2 million cigarettes were seized in the first joint customs operation targeting rail traffic along the EU Eastern border. Twenty-four EU Member States, Croatia, Turkey, Norway and Switzerland participated in the operation which was organised by the Polish Customs Service in close cooperation with the European Anti-Fraud Office (OLAF). The operation took place from 18 to 27 October 2011. The final results of the operation were made public today at the Polish Customs Service in Sopot in Poland. The results could only be made public now not to interfere with further enquiries which had to be performed by the various customs authorities.


What is the Commission's Anti-Fraud Strategy (CAFS)?

The Commission's Anti-Fraud Strategy is a document adopted today by the Commission. It aims to updating and modernising the way fraud against the EU budget is tackled within the Commission with the view to ensure that the EU budget is managed in line with the principles of sound financial management, including the prevention of and fight against fraud.

The overall objective of this new Commission Anti-Fraud Strategy is therefore to improve prevention, detection and the conditions for investigations of fraud. It also aims to achieving adequate reparation and deterrence, with proportionate and dissuasive sanctions, especially by introducing anti-fraud strategies at Commission Service's level respecting and clarifying the different responsibilities of the various stakeholders. The Commission and the Member States are indeed responsible for the proper implementation of the EU budget: Member States administer nearly all the revenues of the EU budget. They also share the management of around 80 % of budget expenditure with the Commission. The remaining 20 % is administered directly by the Commission Services, partly together with the administrations of non-EU countries and international organisations.

In this context, fraud needs to be tackled in an appropriate way. It is of course a highly complex phenomenon and it cannot completely be eliminated. However, the Commission is committed to facilitate prevention and detection of fraud within the Commission's Services and with non-EU countries and international organisations.

Why do we need a new Anti-Fraud Strategy?

The Commission adopted an Anti-Fraud Strategy in 2000. However, time has shown that fraudsters, in particular organised crime, adapt quickly to new circumstances and have managed to bypass rules. In addition, the reform of EU institutions as well as the EU enlargement and the new approaches in financial management have clearly changed the overall context. The Commission therefore believes it is time to respond to these new challenges through a renewed Anti-Fraud Strategy.

Why is there a need to act now?

Fraudulent methods evolve very rapidly. This requires continuous adjustment of EU anti-fraud policies and efforts to improve the protection of the EU's financial interests. In a period of economic crisis and budgetary constraints, it is particularly important to ensure that the budget is effectively spent.

Several other EU institutions, such as the European Parliament, the European Court of Auditors and the Council have expressed similar calls. For instance, the European Parliament has asked the Commission to improve the efficiency of the recovery systems and to provide consolidated data on recoveries and financial corrections. The most important recommendations by the European Court of Auditors last year focused on the need to simplify EU rules, to enhance transparency and improve controls over EU funds. In 2010, the Council also adopted the multi-annual Stockholm Programme which calls on the EU and its Member States to intensify their efforts in the fight against corruption and other forms of financial crime.

How does this Strategy fit into other EU anti-fraud and anti-corruption policy initiatives?

This Commission's Anti-Fraud Strategy fits into an EU comprehensive approach to fight fraud and corruption in the EU. It complements the Commission's proposal to reform the European Anti-Fraud Office, OLAF made public in March 2011. It also complements two other Communications: one on the protection of the EU financial interests by criminal law and by administrative investigations which aims at harmonising national criminal laws and improve cooperation with judicial authorities and the other one on Fighting Corruption in the EU, which includes an EU anti-corruption mechanism for periodic assessment of Member States. Taken together, these initiatives set up the future EU anti-fraud and anti-corruption policies within a coherent and comprehensive framework. Lastly, today's Strategy also reinforces the need identified in the preparation of the new Multi-Annual Financial Framework that will be presented next week, to include appropriate anti-fraud measures across the different EU policies.

What are the most important issues addressed in the Anti-Fraud Strategy?

The issues that need to be addressed as a matter of priority relate to fraud prevention. They include in particular the need for adequate anti-fraud provisions in Commission proposals on spending programmes under the new multi-annual financial framework; the development of anti-fraud strategies at Commission Services' level with the assistance of OLAF, as well as their implementation; and the revision of public procurement directives to simplify and reduce the risks of fraud in Member States.

What is the expected timeline for these priorities?

The priorities that relate to fraud prevention and detection will be put in place by the end of 2013 at the latest. All other priorities (investigations, sanctions, recoveries and horizontal fraud prevention policies, transparency and access to information, procurement and grants) will be implemented by the end of 2014 at the latest.

To whom does this Strategy address to? Is this Strategy legally binding?

This strategy addresses primarily to staff working in the EU institutions. It covers the Commission itself and the executive agencies and is binding for them. It also foresees actions by the Commission in its contact with partners in charge of implementing the budget (see answer to the first question).

What does the Commission propose in its Strategy to tackle fraud?

The Anti-Fraud Strategy is comprehensive document: it recalls the basic principles to fight fraud and covers prevention and detection of fraud, investigations, sanctions recovery and other cross-cutting issues such as international standards, ethics and integrity, transparency, procurements and grants. In practical terms, the Commission intends to put in place specific sectoral anti-fraud strategies for all services managing or supervising EU funds. For instance, these new strategies will be set up to cover the work of project officers, finance staff and auditors in charge of dealing with a certain Fund such as for example Structural Funds or the European Fisheries Funds. In addition, the Commission would put in place regional strategies, covering specific types of fraud. The first example in that respect is the Commission's Action Plan to fight against cigarette and alcohol smuggling at the EU Eastern border published today.

The Commission also proposes that the European Anti-Fraud Office (OLAF) plays a reinforced role in assisting the services by providing assistance and guidance when tackling fraud. For instance, the 'Pluto' approach, which is based on new tools and data analysis and was jointly developed by the Directorate-General for the Information Society and Media and OLAF and helped a lot to improve the audit and control capacities of the DG when managing EU funds. Such expertise could therefore be extended to other services. Finally, the Commission intends to update awareness-raising and training for all staff involved in project management and financial operations.

How will the Anti-Fraud Strategy modify the current system of sanctions?

At present, when beneficiaries of EU funds or legal entities are sanctioned for serious irregularities, fraud or corruption, there is no publicity over the penalties. In its Strategy, the Commission decided to encourage the publicity of such penalties taking into account data protection rules. In addition, it intends to enhance the communication on fraud cases or on suspected fraud between the different stakeholders.

The Commission will also assess whether the financial and/or administrative penalties applied by Member States under national rules are sufficiently effective, proportionate and dissuasive. It will prepare legislative initiatives in that respect, in particular in the customs area as provided for in the Stockholm Action Plan.

Are there any best practice examples from the existing anti-fraud measures?

Yes. The Communication highlights several examples. The "Pluto" project for instance which was set up to help the Commission's Directorate-General for the Information Society and Media to improve its audit capabilities and control functions through analytical tools and information on fraud indicators (red flags) is cited as a best practice example. This approach enables the Commission's services to better identify the links between different beneficiaries of EU funds.

New IT tools can reduce considerably the administrative burden to detect fraud and irregularities including for the management of the revenue side of the budget: a single technical platform for secure exchange of data between customs and other relevant national authorities has been created (the "Mutual Assistance Broker"). It allows for secure exchange of information regarding established or suspected illicit movements of goods and cash entering or leaving the EU eradicating the need for burdensome duplicate of data input, while respecting the rules on data protection.

What are the next steps?

The strategy is expected to be implemented between now and 2014. Some measures have already been launched (as the review of the public procurement directives); others can be initiated immediately or in the near future while others need more preparation. This Anti-Fraud Strategy will be transmitted to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the Court of Auditors who might adopt resolutions, conclusions or opinions on it which the Commission will take into due account when implementing the strategy.


Why is there a need for an Action Plan against cigarettes' smuggling alongside the Commission's Anti-Fraud Strategy?

The Commission's Action Plan, which accompanies this Anti-Fraud Strategy, is a first deliverable of strategies to combat fraud against the EU budget in a regional perspective. It is estimated that the direct loss in customs and tax revenues due to cigarettes and alcohol smuggling accounts for more than €10 billion a year. Many of these smuggled excise goods originate from the EU's Eastern neighbours (in particular Moldova, Ukraine, Russia and Belarus). This results not only in significant revenue losses and harms legitimate businesses, but it also causes public health risks as the most vulnerable groups and especially the young generations, are inclined to buy illegal cigarettes. The new Action Plan proposes a series of measures to counter these illegal activities.

What are the specific measures proposed by this Action Plan?

The Action Plan lists several actions that could be undertaken to fight smuggling at the EU's Eastern border. They include the provision of technical assistance to the countries concerned to strengthen their capacities at land borders (for instance by setting up equipped and trained mobile units, providing additional tools such as scanners, automated recognition tools or night vision). This could be financed thanks to EU Programmes such as Hercule II or Fiscalis 2013. The measures proposed also include the possible alignment of Member States' rules regarding customs penalties for smugglers. At the moment, there is no legal provision at EU level to ensure that operators or smugglers face similar penalties across the EU. This potentially results in "penalty shopping", i.e. smugglers deciding to use ports/entry points where national legislation imposes the lowest penalties. The reinforcement of operational cooperation is also foreseen by the Action Plan via, for instance, Joint Customs Operations targeted to this geographical area. Other actions could also be taken such as the posting of liaison officers, the conclusion of further agreements with tobacco manufacturers and improved means to exchange information. At international level, the Action Plan envisages to continue negotiations of agreements with Eastern Partnership countries to tackle smuggling activities.

Why does the Action Plan not take into account the smuggling of fuels or other products?

At the time being, cigarettes and alcohol are considered to cause the most significant risks in terms of revenue losses and public health. However, actions could be extended to cover other products as monitoring and intelligence will also improve in parallel.

When will the measures of this Action Plan enter into force?

Some measures have already been launched; others can be initiated immediately or in the near future. The main objective of the Action Plan is to tackle the challenges mentioned above in the short term. These actions will serve as a basis to gather experience for additional measures to be taken at medium and long-terms.

European Commission Communication on the protection of EU's financial interests by criminal law and administrative investigations

Communication on Fighting Corruption in the EU

Source: European Commission